TNAG-1874-FCO40-2665-Relations-between-Hong-Kong-and-other-British-Dependent-Terr-1989 — Page 11

CODE 18-77

CONFIDENTIAL

Reference..

there will be many competing calls on this newly established budget (eg proposed construction of four new prisons), and it is unlikely to cover all the DTs' immediate needs even in the law and order field. Moreover, there are obviously limits to the extent to which ODA are prepared to stretch their definition of what constitutes a 'developmental' project);

d) negotiating with the Treasury through Finance Department for additional ad hoc resources from the Reserve (a route which we could take only with weighty and urgent justification, and strong ministerial backing);

e) abandoning/curtailing altogether whatever initiative we wish to pursue to solve a given problem.

3. In recent weeks funding problems of this kind have very much come to the fore. The current Metropolitan Fraud Squad investigations into the Montserrat offshore finance sector has been paid for since February by the Government of Montserrat. The investigations to date have barely scratched the surface. of a complex fraud and money laundering network, and may need to continue for perhaps two years. It would be unrealistic to assume that the Montserrat Goverment will be capable of or willing to foot the bill for much longer. (Meeting the entire cost of such a two year investigation would put Montserrat back into budgetary aid). As things stand, we have had no alternative but to ask the ODA to shoulder the burden even though the investigation of fraud and drugs money laundering activities hardly constitutes a developmental project.

4.

We have encountered similar difficulties in our efforts to find funds for the salaries of the RAF pilot and engineer employed to operate the drugs surveillance plane from BVI and TCI. Neither MOD, nor ODA, nor the territorial governments themselves nor the US authorities are prepared to meet this cost and there is no obvious FCO source. Other recent or possible future cases where funding problems have been or will be serious obstacles to progress include:- the Coopers and Lybrand review of DT offshore financial sectors; the current Caribbean DTs drug survey; reviews of police, prison and judicial systems in the DTs; investigation of postage stamp frauds; survey of Gough Island; fees for specialist consultants; provision of emergency supplies during a natural disaster (eg hurricane); meeting commitments imposed by International Conventions/agreements extended to the DTS in areas such as the environment; maintaining safety/security standards at airports; maintenance/upkeep of Governors' offices and residences; provision of weapons for DT police launches.

5. In view of these problems, Mr Eggar has asked us to set out the arguments for the establishment of a Dependent Territories contingency fund on which Departments could draw in cases where there was no appropriate alternative budget.

CONFIDENTIAL